Following the release of new research on Wednesday, the Financial Services Council (FSC) has argued that proposed “piecemeal” superannuation taxes will not deliver a sustainable federal budget position, but will instead have a severe impact on people’s retirement savings.
Although the Labor government had previously promised to leave superannuation taxes alone, in recent weeks, lobbyists have proposed considerable tweaks that they argue could help fix the spiralling structural deficit.
In a statement issued to the media, the FSC revealed that new modelling by DeltaPearl Partners shows that a package of commonly proposed taxes on superannuation would add just 1.4 per cent to total budget revenue.
“Piecemeal superannuation taxes would raise only $8.5 billion in the context of a government that collects over $560 billion annually in revenue,” said FSC CEO Blake Briggs.
The “piecemeal” taxes the FSC is referring to include the introduction of a $5 million limit on total superannuation balances, a reduction in the tax concession on pre-tax contributions, and the introduction of a flat tax on all earning in retirement of 15 per cent.
These tax changes if applied, would have a negative impact on more than 15 million Australians by undermining consumer confidence in the objective of the system, Mr Briggs said.
“Government should not lose focus on improving equity in the system, such as paying superannuation contributions on the government paid parental leave and broadening the coverage of the Superannuation Guarantee to gig workers,” he argued.
Instead, the FSC has advised the government to focus on measures that it said would improve the equity of the system rather than policies that are sure to “undermine the primary objectives of the superannuation system”.
These FSC-approved measures include replacing the flat tax rate paid on superannuation contributions with a progressive tax rate linked to income. Under this proposal, the FSC explained, employer superannuation contributions would be treated as individual income that is taxed at marginal personal income tax rates less a flat rate refundable 20 per cent tax offset.
Also among the council’s proposals is the inclusion of superannuation contributions within the government paid parental leave (PPL) scheme, followed by broadening the coverage of the Superannuation Guarantee to platform-based gig workers.
Support for $5 million cap widespread
Earlier this month, the Australian Institute of Superannuation Trustees (AIST) reiterated calls for the introduction of a $5 million limit on total superannuation balances.
In its pre-budget submission, the group asked the Labor government to require individuals that exceed that $5 million cap, of whom there are 11,000 according to the Retirement Income Review, to withdraw the excess amount by 1 July 2024.
The government’s retirement review found that people with a super balance of $5 million could achieve annual earning tax concessions of around $70,000.
As such, according to AIST, the proposed changes would further improve the equity of tax concessions and support to achieve a comfortable retirement.
Back in February, Mercer too demanded that super be capped at $5 million citing inequality in Australia’s super system as a key motivator.
At the time, Mercer also argued that a 15 per cent tax rate should be applied to all investment income received by super funds, while a concession of 15 to 20 per cent should be provided for all concessional contributions below existing annual limits.
